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Thursday, October 24, 2013

Potential synergy between tourism industry and export performance

Reis and Varela (full paper here) argue that better tourism industry performance in Nepal could negate some of the costs associated with export market search and reach by providing a “relatively inexpensive platform for cost discovery and acting as a low-cost in-house trade fair”. Interestingly, they find that there is a positive association between tourist inflows from given destinations and their expenditures with future merchandise exports of tourist-related products to those destinations. One clear suggestion is that there greater coordination should be sought between tourism and export promotion activities.

The inflow of tourists reduce the costs of self-discovery associated to exportable products as visiting tourists usually take back samples and indirectly market it in their home country, leading to induced demand for Nepali niche products there. In effect, Nepali tourism entrepreneurs can test demand overseas without incurring much of the usual transaction costs that crops up when merchandise goods are exported. Furthermore, tourist inflows to Nepal itself act as a cost-free promotion of Nepalese niche products just as in trade fairs (where entrepreneurs incur costs).

They find that a 1 percent increase in tourist inflows from a particular country is systematically associated with a 0.5 increase in exports of traditional goods to that particular country one year later, on average, controlling for world demand for the product and product-and year-specific factors.

Excerpts from the paper:

Overall, results strongly suggest that the quantity of tourist inflows are associated with exports of tourist-related products to the tourists’ home countries in the year after their visit to Nepal. This confirms spillover effects from tourism into exports of niche or country-specific goods. Consistently with this hypothesis, the quantity of tourists is not associated with exports of non-tourist-related products in the year after their visit. The spillovers are significant statistically and economically; indeed, their magnitude is sizable. The observed average increase in the number of tourists of about 5 percent per year is systematically associated with, all else being equal, higher exports of tourist-related products by about 2.85 percent per year, taking as a reference the results from the most demanding specification.

About

Formerly, economics officer at Asian Development Bank, Nepal Resident Mission. Worked as a researcher at SAWTEE, Kathmandu. Also, worked as a consultant for Ministry of Commerce & Supplies, Government of Nepal; FAO; UNDP, GIZ-CIM, and ADB among others. I was an op-ed columnist for Republica between December 2008 – June 2012. I also worked as a Junior Fellow for Trade, Equity & Development program at Carnegie Endowment for International Peace, Washington, D.C .